Investor Offers Gemfields to Acquire its 53% Shares

London: Gemfields’ largest shareholder has made an offer to acquire the 53% of the gemstone miner it does not already own, in a bid to restructure the company and make it more profitable, reports Rapaport.

Pallinghurst Resources, a mining-focused private equity firm, has offered Gemfields investors 1.91 shares in Pallinghurst for each share in the colored-stone producer, valuing the miner at $275.6 million (GBP 211.5 million), it announced Friday. Gemfields’ board is reviewing the offer and has advised its shareholders to take no action at the moment. Gemfields’ share price jumped 3.5% on Friday.

Pallinghurst took control of Gemfields in 2008 by selling the Kagem emerald mine in Zambia to the company in return for shares. The deal made Pallinghurst and its co-investors the majority shareholders of Gemfields, which expanded into ruby mining in 2012 by acquiring the Montepuez deposit in Mozambique. In 2013, the miner bought jeweler Fabergé from Pallinghurst for $142 million, which brought the equity firm’s share in Gemfields to 47%.

But Gemfields’ stock performance has been “disappointing” since the investment, and shareholders have not benefited as much as they should have, Pallinghurst argued. Gemfields’ share price has not increased since it acquired Kagem, and has declined significantly over the last year, denting Pallinghurst’s own share price, it added.

“Gemfields remains an attractive and unique business,” Pallinghurst said. “However, within the current structure, Gemfields will continue to be constrained by limited access to equity and debt capital markets; low liquidity in the trading of Gemfields shares; a high cost base; and hence depressed profitability.”

The buyout group has proposed a root-and-branch revamp of Gemfields that would see it focus on its core emerald and ruby operations in Zambia and Mozambique, develop its existing business to reduce the reliance on assets that suffer from cyclical downturns, and explore options for what to do with Fabergé.

Buying the miner “is essential for the shareholders of both Pallinghurst and Gemfields and will position Gemfields to realistically achieve its publicly stated objective of becoming the ‘De Beers of the colored gemstone industry,’” Pallinghurst added.